Should provisions for sales returns be classified as a contra revenue or an expense?

Question

Is there a preferred method of classifying provision for sales returns (or provision for bad debts, volume rebates) in the Profit and Loss Statement?

Answer 1

Bad debt is an expense.

Sales returns is and discount is a reduction of revenue.  You need to do the reduction of revenue, rather than expense. This is not only a matter of accuracy of  account. It can minimize gross receipts tax, rent based upon receipts, etc.